According to a report by the Bureau of Labor Statistics, employed Americans are quitting their jobs at the highest rate in 16 years. Some are quitting to find newer, better jobs, while others are transitioning into entrepreneurship or extended personal sabbaticals.
Quitting a job isn’t a terrible thing. Should you decide to jump the employment ship, it’s best to do it gracefully and with ample forethought. Before you make the leap, there are some things you should do ahead of time to make sure all goes well during and after your transition.
Make a plan
If you are on to the next job, your plan will be a little more straightforward. If you’re launching into entrepreneurship, a good plan will be even more crucial.
Just because there’s not much to contemplate when it comes to having a steady check doesn’t mean that you won’t need a plan. At best, you’ll want to figure out how taking a new job could affect your current life. At worst, you’ll want to plan for the possibility of the job being a total nightmare.
Ask yourself a few questions that will help you gauge the magnitude of change a new job will bring to your life. Will you be commuting more (or less)? Will you require a uniform or dressier clothing? Will you have time to cook for yourself and exercise regularly? Are there opportunities for promotion? Figure how the answers will fit into your financial outlook and your overall life plan. You’ll want to answer these questions before accepting your new job offer and letting go of your current job.
You should even consider a contingency plan in case the new gig doesn’t pan out. If possible, don’t burn bridges at your former place of employment. You might need to lean on contacts there for recommendations, references, or even an open position.
Update your résumé
While it’s fresh in your mind, you’ll want to collect your accolades and keep a record of your accomplishments. Don’t just focus on updating your duties in your current job description, but also add your accomplishments and new skills. Go back over your résumé with the idea of being desirable to recruiters, human resources screeners, or potential business partners.
Even if you’re going into business for yourself, keep a good, updated résumé handy. Some investors and clients will ask for this information as part of an evaluation process. They’ll want to know their business partner’s skill set and experience level before committing to a firm business engagement.
Connect and get recommendations
This is a good time to spruce up your LinkedIn profile and connect with as many people as you can. Don’t just think about Bob in accounting. Reach all of your co-workers, managers, suppliers, and customers.
Collect contact details and ask permission to be used as a reference. (LinkedIn is a good place to store these recommendations as well.) It’s a good idea to be proactive about getting this information because it can be a hassle to search for when you really need it. (Yes, that recruiter knows when you use your buddy as a work reference.)
If you’ll be starting a business, it’s not a bad idea to let people know how they can support you in your new venture. Get their permission to be added to your marketing list. You’d be surprised at how many people could be interested in the product or service you offer if you just let them know about it.
Have a savings cushion
Socking away cash for a rainy day should be a normal part of your routine, but it becomes more important when leaving a job. Transitioning to a new job might cause you to be on a different pay schedule and extend the time between receiving your paychecks. If your new job requires you to spend more money or take a pay cut for some reason, you want to be able to foot the bill comfortably. That’s why your savings account will be helpful.
If you're starting a business, you should imagine everything you’d need savings for. Your personal and business expenses might exceed your profits for a while, so you’d better be prepared to bootstrap your venture with your savings if it comes to that.
Whether going to another job or starting a business, create a budget that covers everything you’ll spend plus all the money you’ll make for the next 6-12 months. If you’re in the negative, that’s the amount you’ll want to have in your savings plus a little more.
Don’t forget your 401(k)
If you’re participating in an employer-sponsored investment plan, you’ll want to think about what you’ll do with your funds. You could leave your money with your old employer, but it’s not usually recommended. You’ll be less likely to care for your 401(k) portfolio by rebalancing it, choosing new funds, or keeping an eye on fees.
Then, there are some scenarios where it makes more sense to let your 401(k) sit tight. You also have the option to move your money to your new employer's 401(k) plan, too. You’ll have to run through the pros and cons of keeping your 401(k) with your old employer or rolling it over to another vehicle, like an IRA or retirement accounts designed for the self-employed.
Cashing out your 401(k) is never a good idea because of the high rate you’ll be taxed to access this money. You definitely don’t want to cannibalize your retirement savings with this move.
Whatever you do, don’t forget about your money when you leave your job. Have a plan so that your hard-earned money can be cared for and nurtured while you work toward retirement.
Work out your health care options
Don’t forget to include this line item in your financial forecasts. Many people omit this number from their back-of-the-napkin math and find that they sorely underestimate what it takes to finance their new reality — whether in a new job or a new business endeavor.
Find out about your new coverage options well ahead of time, if possible. If your new plan will provide considerably less in terms of health benefits, it might even be a deal-breaker for taking the new job. You definitely don’t want to leave your old position and find that the new insurance coverage is expensive or doesn’t suit your needs.
If you’ll be working for yourself, you’ll also have to know how your insurance situation could change. Your plans under the Affordable Care Act, Medicaid, or a health care sharing ministry could differ vastly from what you experienced as an employee under a group plan.
Make sure your credit is top notch
A good credit score and a tidy credit report can be helpful to the job quitter in so many ways. For one, some companies may actually check your credit as part of the employment application process.
Second, if you’re relocating, you’ll need good credit to rent an apartment or finance a home. Ideally, you’ll have all the savings you need to transition between jobs, but if you don’t, a credit card could pick up the slack while you are between paydays or reimbursements.
As a business owner, your credit could be the passport to profitability in the beginning, leaner times of starting out. Your personal credit history will be a factor in obtaining business credit. Access to capital is often one of the main reasons businesses go under, so it’s wise to remain creditworthy as your business ramps up.
Quitting a job can be scary and even risky. However, some planning and thoughtful action can help you reduce these risks and go into your next career move confident and more secure.
MagnifyMoney is a price comparison and financial education website, founded by former bankers who use their knowledge of how the system works to help you save money.